The Average Return on Equity for the Grocery Store Industry
According to CSIMarket, the average return on equity for the grocery industry was 12.82 percent in the third quarter of 2013 and 19.97 percent in the fourth quarter of 2012. Professor Aswath Damodaran of New York University's Stern School of Business tracked a 16.33 percent return on equity for the retail and wholesale food sector, as of January 2013. This data reflects publicly-traded grocery companies.
Return on equity measures the profit earned by a grocery store relative to the amount of money invested by its stockholders. To calculate ROE, divide a grocery store's net income by the average amount of equity for the time period during which the income was earned. Generally, grocery stores offer lower risk than other retailers because demand for groceries is relatively inelastic, so they offer lower returns compared to other companies in their sector.
While return on equity is a useful metric for large grocery store companies, it isn't the only one that grocery store operators can use to judge their operations. Return on asset ratios measure a store's profitability relative to the items of value on its balance sheet. The return on sales ratio, also known as the operating margin, measures how much money a store generates relative to its sales activity.
Data from the Retail Owners Institute shows that food retailers generated an average profit margin of 1.9 percent in 2013. The average return on assets was 7.5 percent for 2013. Data from BizStats.com, which is based on aggregated data from tax returns for the 2010 year, shows an average return on sales rate of 2.3 percent and an average return on assets of 6.34 percent.
One of the main factors driving grocery stores is that they operate on relatively thin margins. According to grocery analyst Jeff Cohen, margins of 1.3 percent are typical. This happens in part because of competition from other major low-price grocery retailers like Wal-Mart. At the same time, grocery stores have to deal with spoilage, which renders large portions of their inventory unsellable and cuts into their margins. Spoilage also necessitates high rates of inventory turnover -- 14 times per year, on average, based on 2013 data from the Retail Owners Institute.